Question 1

Tru Fashions has bonds outstanding during a year in which the market rate of interest has declined. If Tru has elected the fair value option for the bonds, will it report a gain or a loss on the bonds for the year? Explain.

Accepted Answer

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Question 2

How do U.S. GAAP and International Financial Reporting Standards (IFRS) differ with respect to accounting for convertible debt?

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Question 3

Is IFRS or U.S.GAAP more restrictive for determining when firms are allowed to elect the fair value option for financial assets and liabilities? Explain.

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Question 4

List at least three ways that bonds may be taken off the market prior to maturity.

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Question 5

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.

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Question 6

Heidi Baby Products issued 8% bonds with a face amount of $320 million on January 1, 2013. The bonds sold for $300 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, Heidi elected the option to report these bonds at their fair value. On June 30, 2013, the fair value of the bonds was $310 million as determined by their market value on the NASDAQ. Will Heidi report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rate increase or decrease?

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Question 7

In its 2013 annual report to shareholders, Bare Sturns Group Inc. disclosed the following:
On October 28, 2013, the Company issued $475,000,000 aggregate principal amount of 9-1/4% Senior Notes Due 2018 ("Senior Notes") and $618,670,000 aggregate principal amount at maturity of 10-1/4% Senior Discount Notes Due 2018 ("Senior Discount Notes" and collectively the "Notes") in a transaction not registered under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act. Gross proceeds from the offering amounted to $850,000,000. The discount on the Senior Discount Notes is being accreted under the effective interest method.
Explain the last sentence of the disclosure to clarify what accounting was necessary and why.

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Quiz 14: Bonds and Long-Term Notes

Tru Fashions has bonds outstanding during a year in which the market rate of interest has declined. If Tru has elected the fair value option for the bonds, will it report a gain or a loss on the bonds for the year? Explain.

How do U.S. GAAP and International Financial Reporting Standards (IFRS) differ with respect to accounting for convertible debt?

Is IFRS or U.S.GAAP more restrictive for determining when firms are allowed to elect the fair value option for financial assets and liabilities? Explain.

List at least three ways that bonds may be taken off the market prior to maturity.

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.